Bankruptcy cases added to US Supreme Court's docket

On behalf of Lynch Law Offices, P.C. posted in Chapter 13 on Monday, December 29, 2014.

It isn't often that a bankruptcy case goes to the U.S. Supreme Court. Nevertheless, the court will hear a handful of cases this term that will settle questions that the federal courts of appeals have not been able to agree on. These cases are not from Illinois, but the state's courts must follow the Supreme Court's decisions -- the legal landscape could change for debtors here, so we have to pay attention.

Two of the cases involve Chapter 13 bankruptcy petitions. The first asks whether a debtor can appeal a bankruptcy court's decision to reject a proposed repayment plan. Does the buck stop at the bankruptcy court, or does a debtor have the same right to appeal that he or she would have in civil litigation?

The debtor's situation in this case is a little unusual. He filed for Chapter 13 bankruptcy in 2010. One of the creditors was his mortgage lender.

During the course of the next two years, the debtor filed a number of repayment plan proposals. The last took a "hybrid" approach: He suggested a five-year repayment plan that split his debt into a secure claim (backed by the mortgaged property) and an unsecured claim. The bankruptcy court found the plan inconsistent with the Bankruptcy Code and, as a result, rejected it. The bankruptcy appellate panel agreed with the lower court.

The 1st U.S. Circuit Court of Appeals denied the debtor's request to appeal for lack of jurisdiction. In its ruling, the court noted that the state's bankruptcy courts disagreed on whether "hybrid" plans were valid and that the issue should be clarified. The court also determined that it could only be involved in an appeal of a final decision, and the debtor in this case may have had leave to file a revised plan. However, federal appeals courts have differed on this issue as well, and the issue should be settled. (Illinois is in the 7th Circuit, where the right to appeal is not settled one way or the other.)

The arguments and lower court decisions in this matter deal with a number of technical issues. The important thing for us, though, is the answer to the certified question: Is an order denying confirmation of a bankruptcy plan is appealable?

We'll discuss another case on the Supreme Court's docket in our next post.

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